Winter Project Report on

ROLE OF E-BANKING IN INDIAN ECONOMY
Submitted to:

MR. NIKHIL RANJAN AGARWAL Project Supervisor

Submitted by:

SHUAIB ANWER Roll No.0808170091 MBA- IV Sem. March 2010
To

U.P. TECHNICAL UNIVERSITY

DEPARTMENT OF MANAGEMENT STUDIES INSTITUTE OF FOREIGN TRADE & MANAGEMENT STUDIES, LODHIPUR RAJPUT, DELHI ROAD MORADABAD
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ROLE OF E BANKING IN INDIAN ECONOMY
By SHUAIB ANWER MBA IV SEMESTER SUBMITTED TO DEPARTMENT OF MANAGEMENT STUDIES IN THE PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION AT THE INSITUTE OF FOREING TRADE AND MANAGEMENT

March 2010

The author hereby grants IFTM, MORADABAD reproduce and to distribute publicly, paper and electronic copies of the project report in whole or in part.

Signature of student_______________________________________________________________ Department of Management studies March 2010

Certified by_____________________________________________________________________ MR. NIKHIL RANJAN AGARWAL Project Supervisor

Accepted by________________________________________________________________________ DR. MAJULA JAIN Professor and Head Department of Management studies

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CONTENTS

Acknowledgement List of table List of figure

1. Introduction 2. objectives of study 3. Scope Of The Study 4. Research Methodology 5. use and importance 6. Findings & Analysis 7. Conclusions 8. Limitations 9. Suggestions 10. Bibliography

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ACKNOWLEDGEMENT

I express my heartfelt gratitude toward MR.NIKHIL RANJAN AGARWAL (Project Supervisor) for giving me the opportunity to do the Project Work and for providing me this learning experience in this esteemed organization.

I would like to thanks all the customers whom I met and they gave their valuable time to answer my queries. Heartiest thanks to DR. MANJULA JAIN (Head of Department of Management Studies , IFTM, Moradabad) and other faculty members, librarian and all other staffs of my esteemed institute for their time to time assistance.

Lastly I would express my sincere thanks to all respondents for their cooperation. I am extremely obliged and highly thankful all those who have contributed to completion of this project. SHUAIB ANWER MBA IV Semester

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gas online and other purchases at the point-of-sale. • Have your government social security benefits check or your tax refund deposited directly into your checking account.INTRODUCTION Electronic banking. • Withdraw money from your checking account from an ATM machine with a personal identification number (PIN). using a check card rather than cash. rather than by cheque or cash. • Buy groceries. • Use a smart card with a prepaid amount of money embedded in it for use instead of cash 5 . • Instruct your bank or credit union to automatically pay certain monthly bills from your account. such as your auto loan or your mortgage payment. at your convenience. You can use electronic funds transfer to: • Have your paycheck deposited directly into your bank or credit union checking account. day or night. also known as electronic funds transfer (EFT). credit or a personal check. is simply the use of electronic means to transfer funds directly from one account to another. • Have the bank or credit union transfer funds each month from your checking account to your mutual fund account.

6 .at a pay phone. • Use your computer and personal finance software to coordinate your total personal financial management process. or on college campuses at the library's photocopy machine or bookstores. recordkeeping. expressway road toll. investing. along with basic financial analysis and decision making. integrating data and activities related to your income. spending. bill-paying and taxes. saving.

Fig. 1 7 .

For instance. 8 . automatic logging of the service request.VARIOUS FORMS OF E-BANKING: INTERNET BANKING: Internet Banking lets you handle many banking transactions via your personal computer. and pay bills electronically. each of the request types having an attribute to indicate whether the request type is capable of being fulfilled by a customer service representative or by an automated system. receiving the request at the host computer. The system is capable of distinguishing between those customer service requests which are capable of automated fulfillment and those requests which require handling by a customer service representative. you may use your computer to view your account balance. comparing the received request to a stored table of request types. Internet banking system and method in which a personal computer is connected by a network service provider directly to a host computer system of a bank such that customer service requests can be processed automatically without need for intervention by customer service representatives. transmitting the banking requests to a host computer over a network. directing the request either to a queue for handling by a customer service representative or to a queue for processing by an automated system. The method of the invention includes the steps of inputting a customer banking request from among a menu of banking requests at a remote personnel computer. and. identifying the type of customer banking request received. depending upon the attribute. The system is integrated with the host computer system of the bank so that the remote banking customer can access other automated services of the bank. request transfers between accounts.

cash machine. some ATMs will attempt retain the card as a security precaution to prevent an unauthorised user from discovering the PIN by guesswork. Captured cards are often destroyed if the ATM owner is not the card issuing bank. Also called automatic teller machine. the customer may perform a transaction. On most modern ATMs. 9 . Many ATMs also allow people to deposit cash or cheques. If the number is entered incorrectly several times in a row (usually three attempts per card insertion).AUTOMATED TELLER MACHINES (ATM): An unattended electronic machine in a public place. Also called money machine. The customer then verifies their identity by entering a passcode. often referred to as a PIN (Personal Identification Number) of four or more digits.000 ATM’s. connected to a data system and related equipment and activated by a bank customer to obtain cash withdrawals and other banking services. transfer money between their bank accounts. the customer identifies him or herself by inserting a plastic card with a magnetic stripe or a plastic smartcard with a chip. The Indian market today has approximately more than 17. order or make cash withdrawals (or cash advances using a credit card) and check their account balances without the need for a human bank teller (or cashier in the UK). that contains his or her account number. An automated teller machine or automatic teller machine (ATM) is an electronic computerized telecommunications device that allows a financial institution's customers to directly use a secure method of communication to access their bank accounts. top up their mobile phones' pre-paid accounts or even buy postage stamps. as non-customer's identities cannot be reliably confirmed. Upon successful entry of the PIN.

The system is bi-lingual and has following facilities offered • • • • • • • • • • Automatic balance voice out for the default account. Balance inquiry and transaction inquiry in all Inquiry of all term deposit account Statement of account by Fax.TELE BANKING: Undertaking a host of banking related services including financial transactions from the convenience of customers chosen place anywhere across the GLOBE and any time of date and night has now been made possible by introducing on-line Telebanking services. e-mail or ordinary mail. By dialing the given Telebanking number through a landline or a mobile from anywhere. Cheque book request Stop payment which is on-line and instantaneous Transfer of funds with CBS which is automatic and instantaneous Utility Bill Payments Renewal of term deposit which is automatic and instantaneous Voice out of last five transactions. the customer can access his account and by following the user-friendly menu. entire banking can be done through Interactive Voice Response (IVR) system. With sufficient numbers of hunting lines made available. customer call will hardly fail. 10 .

S. Debit cards look like credit cards or ATM (automated teller machine) cards. debit account or from a stored account value that's reload able.SMART CARD: A smart card usually contains an embedded 8-bit microprocessor (a kind of computer chip). While a credit card is a way to "pay later. In Europe the health insurance and banking industries use smart cards extensively. The microprocessor on the smart card is there for security. a person could make purchases from their credit account. Smart cards can also be used with a smart card reader attachment to a personal computer to authenticate a user. Debit cards are different from credit cards. Even though smart cards have been around in their modern form for at least a decade. For example. The microprocessor is under a contact pad on one side of the card. but operate like cash or a personal check. The microprocessor enforces access to the data on the card." a debit card is a way to "pay now. Every German citizen has a smart card for health insurance. The chips in these cards are capable of many kinds of transactions. Smart cards are much more popular in Europe than in the U. The enhanced memory and processing capacity of the smart card is many times that of traditional magnetic-stripe cards and can accommodate several different applications on a single card." When 11 . which means no more shuffling through cards in the wallet to find the right one -.S. The host computer and card reader actually "talk" to the microprocessor. Think of the microprocessor as replacing the usual magnetic stripe present on a credit card or debit card. It can also hold identification information. DEBIT CARD: Debit cards are also known as check cards.the Smart Card will be the only one needed. they are just starting to take off in the U.

E-CHEQUE: • • An e-Cheque is the electronic version or representation of paper cheque. The payee "deposits" the Electronic Cheque receives credit. The paying bank validates the eCheque and then "charges" the check writer's account for the check 12 . and restaurants. They offer an alternative to carrying a checkbook or cash. You can use your card anywhere merchants display your card's brand name or logo. gasoline stations. • It can now be used in place of paper cheques to do any and all remote transactions. the cheque writer "writes" the e-Cheque using one of many types of electronic devices and "gives" the e-Cheque to the payee electronically. Debit cards are accepted at many locations.you use a debit card. retail stores. your money is quickly deducted from your checking or savings account. including grocery stores. The Information and Legal Framework on the E-Cheque is the same as that of the paper cheque’s. • An E-cheque work the same way a cheque does. and the payee's bank "clears" the e-Cheque to the paying bank.

To arrange for direct payments. Many businesses offer their employees the option of using direct deposit to receive their paychecks. If you are trying to become more disciplined about saving money. allowing you quicker access to your money. you can arrange to have your direct deposit automatically divided between your checking account and savings account. sometimes referred to as automatic bill payment. Many employers will ask you to fill out a form that explains their payment schedule and gives them permission to access your bank account information in order to deposit your paycheck. The benefits of direct deposit • There are no checks to be lost or stolen. There are many advantages to using direct deposit for your banking needs. or direct debit. electronic bill payment. Tax(income) DIRECT DEPOSIT Direct deposit is a banking option that allows for the transfer of funds without the hassle associated with paper checks. Some people even use direct payments to pay for magazine and newspaper subscriptions or charitable donations. If you have a tendency to forget to pay your bills on time.. This banking method allows you to arrange for the automatic payment of your monthly bills. direct deposit is a convenient alternative to traditional banking. Another variation of direct deposit is the direct payment option. Etc. If you’re concerned about the environment. automatic debit. Direct deposits typically are processed faster than paper checks. you’ll need to contact the companies that issue your monthly bills.OTHER FORMS OF ELECTRONIC BANKING • • • • • Direct Deposit Electronic Bill Payment Electronic Check Conversion Cash Value Stored. A voided check that shows your bank account’s routing number may also be required. The process for setting up a direct deposit can vary. direct payment is a convenient way to manage your finances and prevent missed payments from damaging your credit rating. you can rest easy knowing that direct deposits reduce the amount of paper required to process financial transactions. 13 . If you don’t live near your bank or your schedule makes it difficult to run errands during the day..

Electronic bill payment Electronic bill payment is a feature of online banking.even if you are out of town. allowing a depositor to send money from his demand account to a creditor or vendor such as a public utility or a department store to be credited against a specific account. The payment is optimally executed electronically in real time. • Direct deposit can help you avoid bouncing checks because the deposit is direct and on time. • The federal government and many employers will deposit your check a day early if the regular payday falls on a holiday. • It can save you trips to the bank and help you avoid long lines at tellers or ATMs. The bank can usually also generate and mail a paper cheque or banker's 14 . • Many banks offer free or lower-cost checking for customers with direct deposit because it saves them the cost of processing paper checks. though some financial institutions or payment services will wait until the next business day to send out the payment. sick or unable to get to your financial institution.• Payments reach your account the day the check is issued -.

Electronic bill payment and presentment (EBPP) includes an electronic bill payment system (EBPS). routing information. Although this technology was available before December in 1998.draft to a creditor who is not set up to receive electronic payments. Electronic Check Conversion Electronic check conversion. but the actual payment is processed as an electronic funds transfer. Electronic bill payment and presentment is “the electronic bill presentment to the consumer and the electronic initiation of payment by the consumer”. which is either voided and returned to you or destroyed. so it's important to have the funds available in your account before you authorize an electronic check conversion. Most large banks also offer various convenience features with their electronic bill payment systems. and various options for searching one's recent payment history: when did I last pay Company X? To whom did I make my most recent payment? In many cases one can also integrate the electronic payment data with accounting or personal finance software. the ability to manage payments from any computer with a web browser. and bank ID information on your check.Sending bills electronically via the internet is much faster and cheaper though.it can also feature invoices sent by e-mail or viewed on a secure web site (with notices of new invoices being sent by email). The payment is automatically debited from your account using the account. Electronic check conversion is a payment process in which you give a payee a check. 15 . such as the ability to schedule payments in advance to be made on a specified date. Keep in mind that an electronic funds transfer will be completed much more quickly than a check. A business must notify you before it uses electronic check conversion to process your payment.

When your check information has been processed and your check has been handed back to you. Or maybe you’re mailing a check as payment to a company. The merchant electronically sends information from the check (but not the check itself) to your bank or other financial institution. You need to make sure you have enough money in your account when you write a check. the money will come out of your checking account sooner than you might expect. How does electronic check conversion work? When you give your check to a store cashier.As with any other type of electronic funds transfer. The next time you write a check to your local merchant. That payment. and the funds are transferred into the merchant’s account. too. the check is run through an electronic system that captures your bank account information and the amount of the check. You’re asked to sign a receipt and you get a copy for your records. which converts information from your paper check into an electronic payment from your bank account. The merchant or company receiving your check electronically sends information from your check (but not the check itself) through the system. Impact of Electronic Checks Electronic checks allow businesses to process payments more quickly. and the funds are transferred into their account. it should be voided or marked by the merchant so that it can’t be used again. may be processed electronically. Electronic check conversion also may be used for checks you mail to pay for a purchase or to pay on an account. the cashier may hand it back to you after the payment has been processed – electronically. Why? More merchants and companies are using electronic check conversion. As a result. you have the right to ask your bank to investigate any errors or misuses. and you can’t rely on ‘float’ 16 .

Keep a balanced checkbook and consider some type of overdraft protection plan. or regressive. into a telephone or other numeric keypad. Individual income taxes often tax the total income of the individual (with some deductions permitted). TAX An income tax is a tax levied on the income of individuals or business (corporations or other legal entities). expenses. printed on the card.time as much as you might have in the past. it is often called a corporate tax. with varying degrees of tax incidence. on which the card number is encoded. Stored-Value Card A stored-value card refers to monetary value on a card not in an externally recorded account and differs from prepaid cards where money is on deposit with the issuer similar to a debit card. The term stored-value card means the funds and or data are physically stored on the card. or by entering a code number. corporate income tax. while corporate income taxes often tax net income (the difference between gross receipts. With prepaid cards the data is maintained on computers affiliated with the card issuer. Various systems define income differently. or profit tax. One major difference between stored value cards and prepaid debit cards is that prepaid debit cards are usually issued in the name of individual account holders. and often allow 17 . while stored value cards are usually anonymous. Various income tax systems exist. When the tax is levied on the income of companies. using radio-frequency identification (RFID). The value associated with the card can be accessed using a magnetic stripe embedded in the card. and additional write-offs). Income taxation can be progressive. proportional.

18 .notional reductions of income (such as a reduction based on number of children supported). They may allow losses from one type of income to be counted against another. with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government. Personal income tax is often collected on a pay-as-you-earn basis. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income. such that business losses can only be deducted against business tax by carrying forward the loss to later tax years. and tax refunds from the government for those who have overpaid. Other tax systems may isolate the loss. For example. for taxpayers who have not paid enough during the tax year. a loss on the stock market may be deducted against taxes paid on wages.

19 .and a well off one too. With more better and faster options a bank will surly be able to create better customer relations and satisfaction. Efficiency. The person does not have to go to a branch where that service may or may not be offer. A person can print of information. Plus. The Internet also provides a level playing field for small banks who want to add to their customer base. A person may not want to use Internet banking but having the service available gives a person the feeling that their bank is on the cutting image.BENEFITS/CONCERNS OF E-BANKING BENEFITS OF E-BANKING For Banks: Price.Banks can become more efficient than they already are by providing Internet access for their customers. and applications via the Internet and be able to search for information efficiently instead of waiting in line and asking a teller.In the long run a bank can save on money by not paying for tellers or for managing branches. it's cheaper to make transactions over the Internet. forms. Customer Base. because there are no geographic boundaries with the Internet.The Internet allows banks to reach a whole new market.A bank seems more state of the art to a customer if they offer Internet access.Banking on the Internet not only allow the customer to have a full range of services available to them but it also allows them some services not offered at any of the branches. Image. Customer Service and Satisfaction. The Internet provides the bank with an almost paper less system.

Companies will have to make sure that they have software in place software market. View Transaction History and avoid going to an actual bank. At many banks the customer doesn't have to maintain a required minimum balance. creating a 20 . Transfer Money. Any major problems or disastrous can destroy the banks reputation quickly an easily. By showing the customer that the Internet is reliable you are able to get the customer to trust online banking more and more. Customer support . The second big benefit is better interest rates for the customer. Check Stock Market Information. Check Currency Rates. Laws .banks will have to create a whole new customer relations department to help customers. the law does.banking gives customer the control over nearly every aspect of managing his bank accounts. Banks have to make sure that the customers receive assistance quickly if they need help.While Internet banking does not have national or state boundaries. Buy and Sell Securities. See which checks are cleared.For Customers: Bill Pay: Bill Pay is a service offered through Internet banking that allows the customer to set up bill payments to just about anyone. Besides the Customers can. Check Balances. Customer can select the person or company whom he wants to make a payment and Bill Pay will withdraw the money from his account and send the payee a paper check or an electronic payment Other Important Facilities: E. The best benefit is that Internet banking is free. CONCERNS WITH E-BANKING As with any new technology new problems are faced.

Initially. New banking intermediaries offering entirely new types of banking services have emerged as a result of innovative e-business models. services and advice through Internet. Other challenges: lack of knowledge from customers end.e. due to advances in Internet security and the advent of relevant protocols.. sit changes by the banks. they entered the e-commerce market as providers/distributors of their own products and services. There are always question whether or not something took place. More recently. products. for the banks in US and in the European countries. Security: customer always worries about their protection and security or accuracy. banks have discovered that they can play their primary role as financial intermediators and facilitators of complete commercial transactions via electronic networks especially through the Internet. Some banks have chosen a route of establishing a direct web presence while others have opted for either being an owner of financial services centric electronic marketplace or being participants of a non-financial services centric electronic marketplace. 21 . The Internet has emerged as one of the major distribution channels of banking products and services. Then. The dynamic and flexible nature of this communication channel as well as its ubiquitous reach has helped in leveraging a variety of banking activities.monopoly. etc E-BANKING GLOBAL PERSPECTIVE The advent of Internet has initiated an electronic revolution in the global banking sector. banks promoted their core capabilities i.

helping banks to achieve new levels of efficiency in financial transactions by strengthening customer relationship. new competition from pure online banks has put the profitability of even established brick and mortar banks under pressure. Moreover. For traditional banks to define what niche markets to serve and decide what products/services to offer there is a need for a clear and concise Internet commerce strategy. Global E-banking industry is covered by the following four sections: E-BANKING SCENARIO : The banking industry is expected to be a leading player in E-business. The Internet has changed the customers' behaviors who are demanding more customized products/services at a lower price. very few banks have been successful in developing effective strategies for fully exploiting the opportunities offered by the Internet. While the banks in 22 . Banking transactions had already started taking place through the Internet way back in 1995.The trend towards electronic delivery of banking products and services is occurring partly as a result of consumer demand and partly because of the increasing competitive environment in the global banking industry. The Internet promised an ideal platform for commercial exchange. Electronic finance offered considerable opportunities for banks to expand their client base and rationalize their business while the customers received value in the form of savings in time and money. promoting price discovery and spend aggregation and increasing the reach. However.

The banks in US are using the Web to reach opportunities in three different categories i. with the use of Internet. may be offered in an equivalent quantity with lower costs to the more potential customers. Access to high-quality E-banking products is an issue as well. cited by 40 percent of respondents of the survey. and to improve customer relationship. to market information. to deliver banking products and services. In Asia. However. Still. This means that banks may enlarge their market without opening new branches. and with the expected 10-fold increase of the British E-business market by 2005. especially bill payment. It is considered that E-banking will succeed if the basic features. according to UNCTAD. are handled well. while in US. Around one fifth of Finish and Swedish bank customers are banking online. the share of the financial services will further increase. in spite of several countries being well connected via Internet. Most of them are using the Internet as a new distribution channel. Majority of the banks in Asia are just offering basic services compared with those of developed countries.developed countries are working primarily via Internet as non-branch banks. the major factor restricting growth of E-banking is security. Financial services.e.. banks in the developing countries use the Internet as an information delivery tool to improve relationship with customers. online banking is growing at an annual rate of 60 percent and the number of online accounts has approximately reached 15 million by 2006. Bill payment was the most popular feature. approximately 60 percent of E-business in UK was concentrated in the financial services sector. providing this service would be difficult for banks in Asia because it requires a high level of security and 23 . E-banking seems to have a future in Asia. Banks have established an Internet presence with various objectives. In early 2001. There may be contacts from each corner of the world at any time of day or night.

24 . though large banks in the Europe have a competitive edge due to their ability to invest heavily in new technologies. they are still not ready to embrace E-banking. over 50 percent of the banks in the US were offering E-banking services. • High degree of uncertainty over the impact that new entrants will have on current business models. distribution and advice. In 2001. it is very clear that it is having a significant impact on traditional banking activities. However. the Internet is accelerating the reconfiguration of the banking industry into three separate businesses: production. E-banking offered entry and expansion opportunities that small banks traditionally lacked. and the ability to advertise heavily.involves arranging transactions with a variety of players. due to the combined impact of: • • The emergence of new and more focused business models New technological capabilities that reduces the banking relationship and transaction costs. Moreover. The economics of E-banking was expected to favor large banks because of economies of scale and scope. In Europe. Though E-banking in Europe is still in the evolutionary stage. Apart from affecting the way customers received banking services. large banks appeared to have a clear advantage over small banks in the range of services they offered. This reconfiguration is being further driven by the Internet. Unlike in the US. Some banks in US were targeting their Internet strategies towards business customers. E-banking was expected to influence the banking industry structure. medium-sized banks and start-ups have an important role to play on the E-banking front if they can take concrete measures quickly and effectively. Hence.

In the fast-paced e-economy. But whether they adopt an offensive or a defensive posture. banks have to keep up with the constantly evolving business models and technology innovations of the Internet space. banks must recognize the seriousness of the challenge ahead and develop a strategy that will enable them to leverage the opportunities presented by the Internet. Banks must make efforts to increase their site usage by customers and effectively co-ordinate the online channel with branches and call centers. Hence. they are not getting customers in large numbers. Some of these reasons include usability features of the site. they must constantly re-evaluate their strategy. and higher customer retention. Customers have some rational reasons for staying offline. concerns about security and frequent complaints that signing up is 25 . Though banks have enrolled some existing customers in their online programs. less than 15 percent of banks with transactional websites will realize profits directly attributable to those sites. But the pressure is now building for all banks to develop sound e-business strategies that will attract and retain increasingly discriminating customers. cross-selling opportunities. Just enrolling customers for online banking may not be sufficient until and unless they use the site actively. Not many banks have been as e-business-savvy.E-BANKING STRATEGIES: E-banking offers vast opportunities. which have already invested huge amounts in their online initiatives. Early e-business adopter like Wells Fargo not only entered the E-banking industry first but also showed flexibility to change as the market developed. yet even less than one in three banks have an E-banking strategy in place. Then only they will be able to derive maximum value that includes cost reduction. No single E-banking strategy is right for every banking company. is that their online offerings remain unprofitable. The major problem with the banks. According to a study. This has made banks wonder whether there is any value in the online channel.

Integrating the online channel with the rest of the bank is another important issue that banks must focus upon. and which channel(s) the customer is likely to visit next. Banks can solve these problems by refocusing investment on improving the site's basic functionality and user-friendliness.complicated and time-consuming. The interactions in each channel can then be worked around these paths. a call center representative must work out which channel(s) the customer used before coming to her. Each channel must have entry and exit points that must welcome customers and then send to other channels. Integrated channels working together are far more effective than a group of channels working without any coordination. make investments and have to develop a variety of 26 . This is important because nearly all the value of the online channel is realized offline _ in cross sales completed in other channels and in cost reductions. banks must formulate paths that people in various customer segments are likely to take among the channels. Hence. creates far less value than strengthening core capabilities and getting customers to use them. An actively used online channel should also serve as a medium to sell banking services for the branch staff. and the relationship manager. and avoiding advanced features that most customers neither understand nor value. those banks that are planning to build their online businesses will have to understand several strategic issues like do they have the right business model for E-banking? How should they price their E-banking products and services? Bankers planning to move into Ebanking have to explore different options. Banks must make efforts to familiarize customers with their sites and show them how easy and efficient the online channel is to use. the overall goal of banks is to create a seamless multi channel experience. On the other hand. For example. Developing advanced features that appeal to a relatively small numbers of customers. the call center. To facilitate this integration.

and management roles. They have to put their time and efforts to identify the best opportunities. getting people in the traditional business to help build an e-enterprise would not be an easy task. With the proliferation of new technologies. While most of the banks have started focusing on E-banking activities. Banks can exploit the opportunities provided by the Internet if they demonstrate courage. disintermediation of traditional channels is being witnessed.banking business may not fructify. To make all this happen. However. if they are too aggressive in using price incentives to build their e-business. Traditional banks that are conservative in nature may find it difficult to attract and retain online talent. transactions and third-party 27 . M-Banking is both an additional opportunity for banks to offer their online services and an additional channel from which to access new customers and cross-sell to existing customers. they risk the profitability of their traditional business. a new challenge in the form of mobile banking has emerged. and take decisive action. use their imagination. their efforts to build a sound e. Rapidly changing lifestyles of customers and their demand for more speed and convenience has subdued the role of branch banking to a certain extent. Moreover. Banks can go beyond their traditional role as a channel for banking/financial services and can become providers of personalized information. if they do not offer sufficient price incentives for customers to bank online. Banks have to be creative in re thinking organizational structures and management processes. • Exploit additional sources of revenue from subscriptions. They can successfully leverage m-banking to: • Provide personalized products and services to specific customers and thus increase customer loyalty. requires a major revision of incentive systems. planning and budgeting processes. In the case of traditional banks.partnerships.

M-Banking gives banks the opportunity to significantly expand their customer relationships provided they position themselves effectively. banks can use the infrastructure and applications developed for the Internet and move it to mobile phones. The cost of the average payment transaction on the Internet is minimum. The WAP interface is much faster and convenient than the Internet. customers had to come physically into the bank branch to do banking transactions including transfers. reducing the need for ATMs. make bill payments. and even check credit card balance. deposits and withdrawals. Several studies found that the estimated transaction cost through mobile phone is16 cents.referrals. with the emergence of Wireless Application Protocol (WAP) technology. a telephone bank is 54 cents. practically anytime and anywhere. a fully computerized bank using its own software is 26 cents. To leverage these opportunities.27. an ATM. Now people no longer have to be tied to a desktop PC to do their banking. and acquire competitive advantage in collecting. Online banking allowed customers to do financial transactions from their PCs at home via Internet. transaction details. allowing customers to see account details. The Internet then brought another venue with which customers could do banking. In the past. Banks had to employ several tellers to physically make all those transactions. Automatic Teller Machines (ATMs) were then introduced which allowed people to do their banking on their own. a bank branch. 28 . Now. processing and deploying customer information E-BANKING TRANSACTIONS: The introduction of new technologies has radically transformed banking transactions. they must form structured alliances with service affiliates. This helped the banks cut down on the number of tellers and focus on managing money. $1.

as more and more payments will pass through the Internet. the challenge for banks is to offer a payments back-bone system that will be open enough to support multiple payment instruments (credit cards. the use of the Internet for commercial transactions started to gain momentum in 1995. digital money etc. the customer value proposition for online bill payment is more compelling. several banks are making efforts to find ways to meet the growing needs of EBPP. and more than half of all transactions will be routed through online B2B marketplaces. Established banks can emerge as key online integrators of customer bills and can capitalize on this high potential market. direct debit to accounts. and on the Internet it costs just 13 cents. debit cards. Recent developments are now encouraging banks to target small businesses as a separate lending category online. According to a study. There is a need for 29 . Offering online bill payment and aggregation will increase the competitiveness and attractiveness of E-banking services and will allow banks to generate service-fee income from the billers.7 tn by 2004.27 cents. However. The market for Electronic Bill Presentment and Payment (EBPP) is growing. In the B2B segment. More than 2. B2B e-commerce is expected to grow from $406 bn in 2000 to $2. Growing with the popularity of EBPP is also the paying of multiple bills at a single site known as bill aggregation. As a result. As more number of bill payers are getting online. Banks are increasingly building payment infrastructure with various security mechanisms because there is tremendous potential for profit.000 banks in the world now have transactional websites and the growth of online lending solutions is making them more cost efficient. e-checks.) and scalable enough to allow for a stable service regardless of the workload. 18 million households in the US are expected to pay their bills online by 2003 compared to 2 million households in 2001.

To meet this need. a group of banks and non-financial institutions led by Citibank and Wells Fargo have formed a company called Financial Settlements Matrix . the marketplace must be capable of providing the payments processing. Hence. and enhance cash-flow management. payment technology vendors and e-commerce companies to form strategic alliances. treasury management services. 30 . invoicing and other services that participating financial services firms offer. payables/receivables data flows. leaving the financial aspects of transactions to be handled through traditional non-Internet channels. It provides business buyers and sellers with access to secure payment processing. The webbased B2B e-commerce offers tremendous opportunities for banks. This new form of collaboration between partners with complementary core competencies may prove to be an effective business model for e-business.automated payment systems to reduce cost and human error. A Business 2 Business(B2B) marketplace would provide minimum value to its customers if it just matches buyers and sellers. and credit solutions to complete the full cycle of a commercial transaction on the Internet.

Internet banking is still concentrated in the largest banks. 44 percent of national banks maintained transactional websites. In mid-2001. and Switzerland. 31 . with up to onethird of bank customers in Finland and Sweden taking advantage of E-banking. the Scandinavian countries.E-BANKING TREND: Internet banking is gaining ground. 2 In the United States. almost double the number in the third quarter of 1999. Fig. where more than 75 percent of all banks offer such services (see chart). Singapore. data on Internet banking are scarce. Unfortunately. The Scandinavian countries have the largest number of Internet users. and differences in definitions make cross-country comparisons difficult. Spain. Banks increasingly operate websites through which customers are able not only to inquire about account balances and interest and exchange rates but also to conduct a range of transactions. one finds that Internet banking is particularly widespread in Austria. These banks account for over 90 percent of national banking system assets. Even so. Korea.

S. These "virtual" or Internet-only banks do not have a branch network but might have a physical presence. and the European Union has several—either as separately licensed entities or as subsidiaries or branches of brick and mortar banks. for example. through electronic distribution channels. The United States has about 30 virtual banks. including loan applications and brokerage services. an administrative office or nonbranch facilities like kiosks or automatic teller machines. 32 . most banks have combined the new electronic delivery channels with traditional brick and mortar branches ("brick and click" banks). only about 6 percent of them use these services. consumers have accounts with banks that offer Internet services. Asia has 2. launched in 2000 and 2001. While most U.The larger banks tend to offer a wider array of electronic banking services. To date. or only. but a small number have emerged that offer their products and services predominantly.

(1) Technology and Security issues (2) Legal issues and (3) Regulatory and Supervisory issues. Technological developments have been one of the key drivers of the global economy and represent an instrument that if exploited well can boost the efficiency and competitivity of the banking sector. Competition and changes in technology and lifestyle in the last five years have changed the face of banking. the outlook for the Indian industry remains optimistic. Many global research companies believe that Ebanking adoption in India in the near future would be slow compared to other major Asian countries.Banking in India is not yet apparent. The importance of the impact of technology and information security cannot be doubted. The changes that have taken place impose on banks tough standards of competition and compliance. Despite the global economic challenges facing the IT software and services sector.e. as competition increases from private banks and non banking financial institutions. The issue here is – 'Where does India stand in the scheme of Ebanking. However. RBI has accepted the guidelines of the group and they provide a good insight into the security requirements of Ebanking.Indian E-banking is still nascent. The problem here is that since the Internet is not a regulated 33 .' E-banking is likely to bring a host of opportunities as well as unprecedented risks to the fundamental nature of banking in India. The impact of E. although it is fast becoming a strategic necessity for most commercial banks. the rapid growth of the Internet has introduced a completely new level of security related problems. The Reserve Bank of India has also set up a "Working Group on E-banking to examine different aspects of E-banking. The group focused on three major areas of E-banking i.E-BANKING SCENARIO WITH INDIAN ECONOMY: India is still in the early stages of E-banking growth and development.

security measures must be in place to prevent unauthorized users from attempting to long into the online banking section of the website. Third. Regarding the regulatory and supervisory issues. From a legal perspective. there will always be people who want to use it to make illicit gains. The second is the security of the environment in which the Internet banking server and customer information database reside. security procedure adopted by banks for authenticating users needs to be recognized by law as a substitute for signature.. and feel they are insufficient for the growth of E-commerce. In India. if people have to feel more comfortable about transacting online. Though the Indian Government has announced cyber laws. The Regulators themselves who will now be paying much more attention to the qualitative aspects of risk management have recognized this. only such banks which are licensed and supervised and have a physical presence in India will be permitted to offer E-banking products to residents of India. the Information Technology Act. The security issue can be addressed at three levels. Taxation of E-commerce transaction has been one of the most debated issues that are yet to be 34 . Lack of consumer protection laws is another issue that needs to be tackled.technology and it is readily accessible to millions of people. most corporate are not clear about them. Any other method used by banks for authentication should be recognized as a source of legal risk.. the asymmetric crypto system and hash function) as a means of authenticating electronic record. 2000. in section 3(2) provides for a particular technology (viz. The first is the security of customer information as it is sent from the customer's PC to the Web server. With institutions becoming more and more global and complex. the nature of risks in the international financial system has changed.

The four forces-customers.owned banks. which submitted its report in September 2001. Also RBI is about to become the first Government owned digital signature Certifying Authority (CA) in India. recommended that e-commerce transaction should be taxed just like traditional commerce. many politicians continue to insist that the Net must remain tax-free to ensure continued growth. The Central Board of Direct Taxes. While ecommerce has been causing loss of tax revenues to the Government. growth and the need to satisfy a growing tech-survey consumer base are three clear rationales for implementing E-banking in India. technology. COMPUTERISATION OF BANKS IN INDIA . Thus efficiency. The explosive growth of e-commerce has led many executives to question how their companies can properly administer taxes on Internet sales.resolved by India and most other countries. A permanent ban on custom duties on electronic transmissions. simple and certain and simplification of state and local sales taxes. The move is expected to initiate the electronic transaction process in the banking sector and will have far-reaching results in terms of cost and speed of transactions between government. Without sales tax.ISSUES & EVENTS 35 . international tax rules that are neutral. convergence and globalization have the most important effect on the Indian financial sector and these changes are forcing banks to redefine their business models and integrate technology into all aspect of operation. and that collecting sales taxes on Net commerce could restrict its expansion. online sellers get a price advantage over brick and mortar companies.

Should we need an educated worker to compute this task again and again? A business needed human agents to attend to production. finance etc. To quote a concrete example a major nationalised bank in India. marketing. invoices. multiplying. depicting high-level tasks. Clerical task is defined as a routine and repetitive performance involving. attending/answering correspondence. which employed 36 . Man continued to carry out only those functions that needed his thinking process to be involved. and duplicating data/information from one source to another. dividing numbers. This created white-collar employment for educated persons by leaps and bounds. adding. the basic knowledge of a language and minimum acquaintance with rules & procedures of the organisation that are followed day in day out and relevant to the job of the particular employee. Many activities that were hitherto performed by man employing his hands and his finger skill came to be carried at great speed and efficiency by machines. bills and multiple of such other functions. However as time went on the internal chorus of record keeping multiplied geometrically as commerce and industry grew in size and volume. transcending national boundaries that employed several thousands of persons for performing routine. maintaining accounts. The tools employed are "a pen. preparing vouchers. the knowledge of arithmetic tables.In the Eighteenth and Nineteenth Centuries the Industrial revolution brought profound changes in the life style of man. Two plus two is four. But more and more people were employed for performing low level tasks. The civil services of the Government and service-based organizations came in the fore-front to inherit this overload of white-collar employment. It is always four. ink and paper". The Industrial Revolution on account of mass production of goods and services brought large commercial and business organizations. subtracting. repetitive clerical tasks. relating to record keeping.

He feels happy once in a month on pay day. that dispensed with this white collar and white-elephant employment progressively.the statistics of two banking institutions in India.when I retired from service from that bank. and aggressively utilise the bargaining power without reference to the input benefit the organization is deriving from them and the productivity they are providing. The advent of mechanical calculating devices and later electronic computing in the West heralded a new age. He turns back and diverts his loyalty to an informal group i. The Government of India and the States including government owned bodies employed as many as 100 lakh junior employees at the clerical and subordinate level. that was until recently employing 2. the trade union. an individual should not be employed for routine repetitive tasks. but on other days his work leaves him nothing to rejoice.36. This evolved in the west three decades before.000 employees towards the end of the century. year 1996-97. the largest and the next large in size can be fruitfully compared. Such employees by virtue of their strength of numbers organise themselves into powerful trade unions. for a turn over of Rs.3 Lakh workers. This makes him dull and feel the work monotonous without job satisfaction.000 Crores (Deposit 25000 + 37 .e. These are the State Bank of India.e.merely 3000 workers in the Fifties (around the time I entered its service in 1957). As years passes the clerical employment results in the individual losing efficiency and productivity to progressively depict a trend of progress in reverse. There are neither opportunities nor challenges to bring in his innovative or creative genius. In this world of human beings necessity is the mother of inventions. i. After 15 years of educational studies. came to engage over 70. but the advent of this evolution in India is only now taking place. To quote again a concrete example.

ICICI bank has at present less than 1000 branches and around 10000 employees. It has a turnover of Rs. which employ presently nearly 10 Lakh employees. If we project the future in respect of State owned banks. but these Banks will have no need of 75 percent (today 25 percent of the work force is subordinate staff. ICICI is a new age high-tech and fully computerised bank.23000 Crores (Deposits 16 + Advances 7 thousand Crores). computerisation is destined to bring about rapid changes. while CMD of SBI around Rs.150 Lakhs. The bank started functioning from the year 1997 and has gained the No.56 Lakhs. The objective of the recently administered VRS is to prepare for this reality of the first decade of the New Millennium.Advances 11000 Crores . improves customer care and customer-service tremendously and reduces substantially scope for corruption or extending undue favour to particular constituents and uneven service to others. though it is partially computerised starting from the year 1993. while SBI retained its manual operations in totality up to 1993 and maintained the work force of that time up to 2001. where banking will be more tech based and less people based. 50 percent is clerical staff and 25 percent is the officers) of the existing workforce by 2010.1. Only in very few hinterland rural pockets there may be a possibility of a need of the present structure of workforce. 38 .2. It will be interesting to know that CMD of ICICI Bank draws annual emoluments of Rs.3 Crores.30 to 40 Lakh Crores. The gap accounts for the difference between manual operations and high-tech banking.latest). The per employee turnover for ICICI bank is Rs. Computerisation brings transparency. that for SBI is Rs.4 to 5 Lacs.2 position in status in India after SBI in volume of business turnover within 5 years of its operation. By about the year 2010 the present turnover of commercial banks in India may double or even treble to around Rs.

New and better products are emerging in the market. It has to provide for electronic data to be accepted legally as evidence and in contracts. India is no less potentially exposed to this risk. The structure of legal system is so far based on manual record keeping. The rate of obsolescence in respect of both hardware and software is considerable. more out of sheer compulsion and necessity to cope up increasing overload and incompatibility of the manual system to sustain further growth. But it needs elaborate steps to incorporate these features in the electronic system.1 user in computerised service has spent Rs. when turnover under Internet banking increases. It is easier to enforce security of information and accountability of performers in a manual system. The National Stock Exchange.180 Crores to enable investors and brokers across the country to trade securities online. Computer crimes are committed widely in the West. India's No. ROLE OF RBI IN COMPUTERISATION OF BANKS IN INDIA Computerization became popular in the western countries right from the Sixties. In the 39 . Main Frames were extensively used both by the Public Institutions and Major Private Organizations.CHALLENGES FACED IN COMPUTERISATION Computerisation is expensive and needs huge investment in hardware and software and subsequent maintenance. The following pages you are presented a series of articles discussing the various facets of this momentous event and its far-reaching effects anticipated to unfold in the coming decade. whose use would enable a rival organization to throw a challenge. Indian banking has accepted computerisation since 1993.

In the Private Sector the first major venture was TCS (Tata Consultancy Services) which started functioning from 1968. In the year 1980 a few batch-mates of IIT Delhi pioneered the effort to start a major education centre in India to impart training in Information Technology and their efforts resulted in the setting up of NIIT in 1981. was set up in 1967 with the objective of research & development in the fields of Electronic Communication. due to the directive of the then Central Government. Control. instrumentation. CMC Ltd (Computer Maintenance Corporation of India Ltd. to serve the gap. Before large scale computerisation. followed by introduction of several software products in high level language and simultaneous advancement in networking technology. computer education became popular in India and coveted by bright students.Seventies Mini Computer became popular and Personal Computers in early Eighties.) was established in 1976 to look after maintenance operations of Main Frame Computers installed in several organisations in India. Aptech Computer Education was established in 1986 following the experiment of NIIT. However in India organised Trade Unions were against introduction of computers in Public Offices. Indian Railways first accepted computerisation for operational efficiency. when IBM left India. This enabled the use of personal computers extensively in offices & commercial organizations for processing different kinds of data. The Electronics Corporation of India Ltd. The booming hardware and software industry in the West attracted Indian students and many of them migrated for better opportunities 40 . automation and Information Technology. when several Engineering Colleges and Technical Institutes introducing Post Graduate Degree courses in Computer Engineering. Computerisation was restricted to major scientific research organizations and Technical Institutes and defence organizations.

In the year 1993.C.to the U.A.S. but at the same time. their adverse impact on customer services and the grave dangers to banks in the context of increasing incidence of frauds. there was a four-fold increase in the number of branches. we are still a decade back to the using computerised service extensively in the country and bringing the facility to the realms of the common man. the Employees' Unions of Banks signed an agreement with Bank Managements under the auspices of Indian Banks' Association (IBA). Both the reports had strongly recommended computerisation of banking operations at various levels and suggested appropriate architecture. Government owned banks in general found the "house-keeping" unmanageable. Rapid development of business and industry brought manual operations of data. Dr. Several heads of accounts in particular interbank clearing and inter-branch reconciliation of accounts went totally out of control. a saturation point. This agreement was a major break through in the introduction of computerised applications and development of communication networks in Banks. however. In the 'seventies. Mechanisation was seen as the best solution to the "problems inherent in the manual system of operations. five-fold increase in advances and a six-fold increase in deposits'. This acted as a overload on the growing banking operations. The first initiatives in the area of bank computerisation. and settled there. His Excellency. Low productivity pushed cost of wages high and employees realised that unless they agreed for computerisation further improvement in their wage structure was not possible. We have today the paradox of India being one of the major powers possessing diverse talents in fields of software development. stemmed out of the landmark report of the two committees headed by the former Governor of the Reserve Bank of India and currently Governor of Andhra Pradesh.Rangarajan. 41 .

Rangarajan's Chairmanship to draw up a perspective plan for computerisation in banks. the Committee on Computerisation in Banks was set up once again under Dr. regional / controlling offices and Head Office necessitated by the explosive growth in the geographical spread of banking following nationalization of banks in 1969. Against this backdrop. the Committee on the Mechanization of the Banking Industry (1984) was set up for the first time to suggest a model for mechanisation of bank branches. 233 mini computers at the Regional/Controlling office levels and trained over 2000 programmers/systems personnel and over 12000 Data Entry Terminal Operators. CHALLENGES OF THE "E-BANKING REVOLUTION" Electronic banking is the wave of the future. In its report submitted in 1989. But it also poses new challenges for country authorities in regulating and supervising the financial system and in designing and implementing 42 . It provides enormous benefits to consumers in terms of the ease and cost of transactions. In the first phase of computerisation spanning the five years ending 1989.The first of these Committees. The Reserve Bank too had embarked upon an ambitious program to bring about state-of-the-art technology in the clearing process and had introduced MICR clearing at 4 centres and computerized clearing settlement at 9 centres. the Committee acknowledged the gains of the initial efforts and sought to move away from the stand-alone dedicated systems to an on-line transaction processing environment in branch banking. banks in India had installed 4776 ALPMs at the branch level. viz. It recommended that the thrust of bank computerisation for the following 5 years should be to fully computerise the operations at both the front and back offices of large branches then numbering around 2500.

In response. it has been transformed by the Internet. Policymakers are also becoming increasingly aware of the greater potential impact of macroeconomic policy on capital movements. which are developing more rapidly than traditional "wired" communication networks. a new delivery channel for banking services that benefits both customers and banks. In addition.macroeconomic policy. Some even see electronic banking as an opportunity for countries with underdeveloped financial systems to leapfrog developmental stages. it poses new challenges. can increase competition among banks. Customers in such countries can access services more easily from banks abroad and through wireless communication systems. operational. and available around the clock. and allows banks to penetrate new markets and thus expand their geographical reach. Electronic banking also makes it easier for customers to compare banks' services and products. many national regulators have already modified their regulations to achieve their main objectives: ensuring the safety and soundness of the domestic banking system. Access is fast. legal. convenient. and reputational—inherent in traditional banking. some of the same risks—particularly governance.02 online.60 through a phone call costs only about $0. Plus. The flip side of this technological boom is that electronic banking is not only susceptible to. 43 . whatever the customer's location (see illustration above). For example. a typical customer transaction costing about $1 in a traditional "brick and mortar" bank branch or $0. Electronic banking has been around for some time in the form of automatic teller machines and telephone transactions. More recently. banks can provide services more efficiently and at substantially lower costs. but may exacerbate. promoting market discipline. and protecting customer rights and the public trust in the banking system.

but indicators showing where banking services originate and where they are provided can help. What can regulators do? They can require even banks that provide their services from a remote location through the Internet to be licensed. Regulatory Risk: Because the Internet allows services to be provided from anywhere in the world. If a customer makes a deposit at an automatic teller machine in country Y. Licensing would be particularly appropriate where supervision is weak and cooperation between a virtual bank and the home supervisor is not adequate.NEW CHALLENGES FOR REGULATORS This changing financial landscape brings with it new challenges for bank management and regulatory and supervisory authorities. Regulators need to establish guidelines to clarify the gray areas between these two cases. Licensing is the norm. in the United States and most of the countries of the European Union. that transaction would most likely be considered deposit taking in country Y. and from the reliance on technology to provide banking services with the necessary security. there is a danger that banks will try to avoid regulation and supervision. 44 . For example. however. Determining when a bank's electronic services trigger the need for a license can be difficult. The major ones stem from increased cross-border transactions resulting from drastically lower transaction costs and the greater ease of banking activities. A virtual bank licensed outside these jurisdictions that wishes to offer electronic banking services and take deposits in these countries must first establish a licensed branch. a virtual bank licensed in country X is not seen as taking deposits in country Y if customers make their deposits by posting checks to an address in country X. for example.

many countries have issued specific guidelines on identifying customers. according to the task force. In a report issued in 2000. Banks can potentially expand the geographical scope of their services faster through electronic banking than through traditional banks. which requires great vigilance. In doing so. however. they might not be fully versed in a jurisdiction's local laws and regulations before they begin to offer services there. whose regulatory authorities will investigate and pursue money laundering violations? The answer. either with a license or without a license if one is not required. As a consequence. Once a customer opens an account. lies in coordinating legislation and regulation internationally to avoid the creation of safe havens for criminal activities. they expose themselves to losses through lawsuits or crimes that are not prosecuted because of jurisdictional disputes. To combat money laundering. Money laundering is an age-old criminal activity that has been greatly facilitated by electronic banking because of the anonymity it affords. including on data collection and privacy. a virtual bank—lacking contact with its host country supervisor—may find it even more difficult to stay abreast of regulatory changes. Operational Risk: The reliance on new technology to provide services makes security and system 45 . When a license is not required. With electronic banking crossing national boundaries. it is impossible for banks to identify whether the nominal account holder is conducting a transaction or even where the transaction is taking place. and regulations on soliciting. the Organization for Economic Cooperation and Development's Financial Action Task Force raised another concern. They typically comprise recommendations for verifying an individual's identity and address before a customer account is opened and for monitoring online transactions. virtual banks could unknowingly violate customer protection laws.Legal Risk: Electronic banking carries heightened legal risks for banks. In some cases.

Banks' security practices should be regularly tested and reviewed by outside experts to analyze network vulnerabilities and recovery preparedness. and many have released risk-management guidelines for banks. and potential dependence on external service providers. some bank supervisors provide links on their websites allowing customers to identify online banks with legitimate charters and deposit 46 . Reputational risks also stem from customer misuse of security precautions or ignorance about the need for such precautions. as well as the integrity of the system and the data. Capacity planning to address increasing transaction volumes and new technological developments should take account of the budgetary impact of new investments. The solution is consumer education—a process in which regulators and supervisors can assist. Security threats can come from inside or outside the system. and supervisors need to include operational risks in their safety and soundness evaluations. these problems can potentially affect other providers of electronic banking services. Managing heightened operational risks needs to become an integral part of banks' overall management of risk. In many countries where electronic banking is becoming the trend. For example. so banking regulators and supervisors must ensure that banks have appropriate practices in place to guarantee the confidentiality of data. the greater the potential for reputational risks.availability the central operational risk of electronic banking. The more a bank relies on electronic delivery channels. the ability to attract staff with the necessary expertise. If one electronic bank encounters problems that cause customers to lose confidence in electronic delivery channels as a whole or to view bank failures as systemwide supervisory deficiencies. bank supervisors have put in place internal guidance notes for examiners. Reputational Risk: Breaches of security and disruptions to the system's availability can damage a bank's reputation. Security risks can be amplified and may result in a loss of confidence in electronic delivery channels.

insurance. They also issue tips on Internet banking, offer consumer help lines, and issue warnings about specific entities that may be conducting unauthorized banking operations in the country.

REGULATORY TOOLS TO OVERCOME CHALLENGES
There are four key tools that regulators need to focus on to address the new challenges posed by the arrival of E-banking. Adaptation: In light of how rapidly technology is changing and what the changes mean for banking activities, keeping regulations up to date has been, and continues to be, a far-reaching, time-consuming, and complex task. In May 2001, the Bank for International Settlements issued its "Risk Management Principles for Electronic Banking," which discusses how to extend, adapt, and tailor the existing risk-management framework to the electronic banking setting. For example, it recommends that a bank's board of directors and senior management review and approve the key aspects of the security control process, which should include measures to authenticate the identity and authorization of customers, promote nonrepudiation of transactions, protect data integrity, and ensure segregation of duties within E-banking systems, databases, and applications. Regulators and supervisors must also ensure that their staffs have the relevant technological expertise to assess potential changes in risks, which may require significant investment in training and in hardware and software. Legalization: New methods for conducting transactions, new instruments, and new service providers will require legal definition, recognition, and permission. For example, it will be essential to define an electronic signature and give it the same legal status as the handwritten signature. Existing legal definitions and permissions—such as the legal definition of a bank and

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the concept of a national border—will also need to be rethought. Harmonization: International harmonization of electronic banking regulation must be a top priority. This means intensifying cross-border cooperation between supervisors and coordinating laws and regulatory practices internationally and domestically across different regulatory agencies. The problem of jurisdiction that arises from "borderless" transactions is, as of this writing, in limbo. For now, each country must decide who has jurisdiction over electronic banking involving its citizens. The task of international harmonization and cooperation can be viewed as the most daunting in addressing the challenges of electronic banking. Integration: This is the process of including information technology issues and their accompanying operational risks in bank supervisors' safety and soundness evaluations. In addition to the issues of privacy and security, for example, bank examiners will want to know how well the bank's management has elaborated its business plan for electronic banking. A special challenge for regulators will be supervising the functions that are outsourced to thirdparty vendors.

THE MACRO ECONOMIC CHALLENGES
But the challenges are not limited to regulators. As the advent of E-banking quickly changes the financial landscape and increases the potential for quick cross-border capital movements, macroeconomic policymakers face several difficult questions.

If electronic banking does make national boundaries irrelevant by facilitating capital movements, what does this imply for macroeconomic management?

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How is monetary policy affected when, for example, the use of electronic means makes it easier for banks to avoid reserve requirements, or when business can be conducted in foreign currencies as easily as in domestic currency?

When offshore banking and capital flight are potentially only a few mouse clicks away, does a government have any leeway for independent monetary or fiscal policy?

How will the choice of the exchange rate regime be affected, and how will E-banking influence the targeted level of international reserves of a central bank?

Can a government afford to make any mistakes? Will the spread of electronic banking impose harsh market discipline on governments as well as on businesses?

The answers to these questions fall into two emerging strands of thought. First, the technological revolution—particularly the expansion of electronic money but also, more broadly, electronic advances in banking practices—could result in a decoupling of households' and firms' decisions from the purely financial operations of the central bank. Thus, the ability of monetary policy to influence inflation and economic activity would be threatened. Second, as electronic banking expands, financial transaction costs can decline significantly. The result would be tantamount to a reduction in the "sand in the wheels" of the financial sector machinery, making capital flows even easier to effect, with a potential erosion of the effectiveness of domestic monetary policy. In this regard, proponents of the Tobin tax—which would tax short-term capital flows to increase their cost and, thereby, the sand in the wheels— would feel that electronic banking makes an even more compelling case for introducing such a tax. While electronic banking can provide a number of benefits for customers and new business opportunities for banks, it exacerbates traditional banking risks. Even though considerable work

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has been done in some countries in adapting banking and supervision regulations, continuous vigilance and revisions will be essential as the scope of E-banking increases. In particular, there is still a need to establish greater harmonization and coordination at the international level. Moreover, the ease with which capital can potentially be moved between banks and across borders in an electronic environment creates a greater sensitivity to economic policy management. To understand the impact of E-banking on the conduct of economic policy, policymakers need a solid analytical foundation. Without one, the markets will provide the answer, possibly at a high economic cost. Further research on policy-related issues in the period ahead is therefore critical.

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4. To gain insights about functioning of E banking. To study the benefits that are provided to the individual under E banking 51 . 5. 2. To study as to how much E banking has penetrated in the minds of the customers 3. To study the E banking facilities offered by the banks to its customers. To explore the future prospects of internet banking.OBJECTIVES OF THE STUDY The various objectives of the study are: 1.

which provides legal recognition to electronic transactions and other means of electronic commerce. 2. To study the impact of E banking in indian banking sector and to reveal out the change in the habits of various customers. It issued guidelines on risks and control in computer and telecommunication system to all banks.SCOPE OF THE STUDY 1. 2000. Several initiatives taken by the government of India. Also to find out the perspective of E banking for future in context to Indian scenario. it has also posed several challenges to the regulators and supervisors. E banking facilitates an effective payment and accounting system thereby enhancing the speed of delivery of banking services considerably. While E-banking has improved efficiency and convenience. The RBI has been preparing to upgrade itself as a regulator and supervisor of the technologically dominated financial system. E banking is also heping the banks to empowered their cutomer segment 3. 4. 5. advising them to evaluate 52 . have facilitated the development of E-banking in India. The government of India enacted the IT Act. as well as the Reserve Bank of India (RBI).

The existing regulatory framework over banks has also been extended to E-banking. Descriptive Research Design:. It covers various issues that fall within the framework of technology. and legal and regulatory issues. has eight distinct characteristics: Research Design Research design is simply the framework or plan for a study.The major emphasis in exploratory research design is on discovery of ideas and insights. which is frequently called research methodology. or a greater understanding of a phenomenon. Exploratory Research Design:. used as a guide in collecting and analyzing data. 53 . There are three types of Research Design:- 1. Research is a process through which we attempt to achieve systematically and with the support of data the answer to a question. security standards.the risks inherent in the systems and put in place adequate control mechanisms to address these risks.The Descriptive Research Design Study is typically concerned with determining the frequency with which something occurs or the relationship between two variables. This process. the resolution of a problem. RESEARCH METHODOLOGY . 2.

Probability Sampling is of following types: 1.3. Casual Research Design:.A Casual Research Design is concerned with determining cause and effect relationship. For the study. Probability Sampling: It is based on the concept of random selection of a controlled procedure that assures that each Population element is gives a non-zero chance of selection. exploratory Research Design is undertaken Sampling Design (a) Population: Element: Businessmen and Servicemen in Moradabad city Time: 20th feb to 20th march (b)Sampling Unit: -Businessmen and Servicemen in Moradabad city (c) Sample Size:. Simple Random 54 .50 (d) Sampling Method:- There are two methods of sampling:- 1.

Non-Probability Sampling: Non probability sampling is non-random and subjective. Stratified 5. Types of NonProbability Sampling 1. For this research work I have chosen Non. Judgement 3. 4 weeks Data Collection Method Data for the present study is collected from two sources:  Primary sources: The data are collected directly from the universe by conducting interviews.2. Convenience 2. Double 2. Area of StudyDurationMoradabad. Quota Researcher selects the sample as per their convenience. etc. these are the 55 . Systematic 3.Probability Convenience Sampling because time limit for the completion of the work is limited and also managers and employees are not available all the time. Cluster 4. That is each member does not have a known non zero chance of being included.

original sources from which the researcher directly gathers data which are not previously referred. 2.  Secondary sources: The data are collected from the secondary sources such as magazines. 56 . These sources consist of already variable data in the form of statements. reports of governments departments. For secondary source I have used Internet. financial statements of the company. and Newspaper etc.There are several Approach of data collection. etc. journals. and reports. The primary sources of data collection are done through – o Observation o Interviewing o Stimulation o Mail survey o Projective techniques o Questionnaire Observation: Observation is a mode of primary data collection through which we directly get the data from a universe and based on that data one can carry on the research. Magazines.Data Approach. I used both Primary and Secondary sources of data collection. For primary source I have used Questionnaire. etc. which may include sensory reports.

The experiment is done on the model and not on the real system because the latter will be inconvenience and expansive. and this interpretation can be based on the individual own background. are asked to fill their responses. particularly in big cities. the responds and the feedback based on which the research can be carried out.Interviewing: Interviewing is another mode of direct data collection. on which the research is conducted. and values. we can get direct data from the universe. Stimulation: Stimulation is a technique of performing experiments on the model of a particular system. Projective techniques:Projective techniques are based on the theory that the description are the vague objects and requires interpretation. Different modes of questions are put up on the paper and the particular universe. Mail survey: Through Mail survey. which is very much popular. Questionnaire: Questionnaire is the method of data collection. 57 . attitudes. which provides complete information about the universe.

The various areas where the banks are preparing to use e-business approach includes familiar and relatively mature electronically-based products in developing markets. credit cards. ATMs. This means that most of the banks have recognized the need to change their business process to conform to changing business trends in order to keep up with competition 2. Internet banking is changing the banking industry and is having the major effects on banking relationships. Providing Internet banking is increasingly becoming a "need to have" than a "nice to have" service 58 . such as telephone banking. In true Internet banking. and direct deposit.USE AND IMPORTANCE 1. any inquiry or transaction is processed online without any reference to the branch (anywhere banking) at any time. Banking is now no longer confined to the branches were one has to approach the branch in person. The benefits of e-business are experienced whether or not the bank is state or private. to withdraw cash or deposit a cheque or request a statement of accounts.

a bank's Internet presence transforms from 'brouchreware' status to 'Internet banking' status once the bank goes through a technology integration effort to enable the customer to access information about his or her specific account relationship. The importance can be highlighted under the following heads • • • • Adopting a webs mindset Catching on the first mover's advantage Recognising the core competencies Ability to deal multiplicity with simplicity 59 . Access to one's accounts at anytime and from any location via the World Wide Web is a convenience unknown a short time ago. The Internet has leveled the playing field and afforded open access to customers in the global marketplace. Internet banking is a cost-effective delivery channel for financial institutions. The six primary drivers of Internet banking includes. in order of primacy are: • • • • • • Improve customer access Facilitate the offering of more services Increase customer loyalty Attract new customers Provide services offered by competitors Reduce customer attrition 4. Consumers are embracing the many benefits of Internet banking.3. Thus.

FINDINGS & ANALYSIS Question1:-In which bank do you have your account PNB ICICI AXIS BANK HDFC BANK S. ANY OTHER 28% 12% 8% 12% 34% 6% 60 .• Senior Management initiative to transform the organisation from inward to outward looking • • • Aligning roles and value propositions with the customer segments Redesigning optimal channel portfolio Acquiring new capabilities through strategic alliances.I.B.

.Are you aware of E banking services offered by your Bank? NO YES 22% 78% 61 . ANY OTHER Series1 INTERPRETATION: It is interpreted that people still have more faith in governmental banks rather than private players.35% 30% 25% 20% 15% 10% 5% 0% PNB ICICI AXIS BANK HDFC BANK S. Question2:.B.I.

Does your bank educate about the E banking services offered? NO YES 34% 66% 62 . Question3:.80% 70% 60% 50% 40% 30% 20% 10% 0% YES NO Series1 INTERPRETATION: It is interpreted that 78% people says that they are aware of E banking services offered by their Bank and 28% says no.

70% 60% 50% 40% 30% 20% 10% 0% YES NO S e rie s 1 INTERPRETATION: It is interpreted that 66% people says that their bank educates them about the E banking services and 34% says no. Question 4 : Does your bank helps you in transaction through E banking ? NO YES 24% 76% 63 .

Question 5 : What are your main transactions you would prefer to do by E banking? Request Cheque Pay Billsa demand draft Createa transfers Book Online Checking of Deposits on a cheque MoneyFixed your current balance Order stop payment 22% 20% 6% 12% 28% 64 .80% 70% 60% 50% 40% 30% 20% 10% 0% YES NO S eries 1 INTERPRETATION: It is interpreted that 76% people says that their bank helps them in transaction through E banking while on the other hand 24% of them says no.

30% 25% 20% 15% 10% 5% 0% Money transfers Create Fixed Deposits Online Request a demand draft Request stop payment on a cheque Series1 INTERPRETATION: It is interpreted that 28% prefer money transfer.now and then ? NO YES 26% 74% 65 .and 20% prefer for paybills. 22% request a DD. Question 6: Do you prefer using E banking instead of visiting your bank .

80% 70% 60% 50% 40% 30% 20% 10% 0% YES No Series1 INTERPRETATION: It is interpreted that 74% customers prefer using E banking instead of visiting their bank while on the other hand 26% of them do not prefer. Question 7: What benefits do you perceive in E banking? Convenience Transparency Speed Time 34% 6% 38% 22% 66 .

40% 35% 30% 25% 20% 15% 10% 5% 0% Convenience Transparency Speed Time Series1 INTERPRETATION: It is interpreted that 34% people perceive convenience. Question 8: Are you aware of the methods which can be taken up to secure a transaction ? NO YES 58% 42% 67 . while 38% says that it is highly speedy and 22% says that it is time saving and only 6% says that there is transparency in E banking.

60% 50% 40% 30% 20% 10% 0% YES NO Series1 INTERPRETATION: It is interpreted that only 42% respondent says that they are aware of the methods to secure a transaction. and 58% says they are not aware . Question 9: Do you feel safe in disclosing your details on net while using net banking ? NO YES 68% 32% 68 .

Question 10: Are you satisfied with your E banking services ? NO YES 20% 80% 69 .70% 60% 50% 40% 30% 20% 10% 0% YES NO Series1 INTERPRETATION: It is interpreted that only 32% respondents feel safe in disclosing their details on net while using net banking while 68% do not feel safe.

80% 70% 60% 50% 40% 30% 20% 10% 0% YES NO Series1 INTERPRETATION: It is interpreted that 80% of the respondents are satisfied with their E banking services while 20% are not satisfied. Question 11: If not satisfied then why ? 70 .

and 30% due to low server speed.OF RESPONDENTS 4 3 1 2 40% 35% 30% 25% 20% 15% 10% 5% 0% Education about E banking Low server speed Lack of cooperation Lack of technical knowledge Series1 INTERPRETATION: It is interpreted that 40% respondents are not satisfied because they do not have proper education about E banking. while 20% lack of technical knowledge and 10% due to lack of cooperation. Question 12: If yes. then you will suggest to others to avail the services? 71 .REASON Education about E banking Low server speed Lack of cooperation Lack of technical knowledge PERCENTAGE 40% 30% 10% 20% NO.

NO YES 10% 90% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% YES NO Series1 INTERPRETATION: It can be interpreted that people are ganing share and more familiarity with E banking as 90% says yes and 10% no. 72 .

while 28% of the respondents lies between 18-30 year of age.and 22% respondents lies between 45-60 year of age group.Question 13: Specify your Age group? AGE GROUP 18-30 30-45 45-60 Above 60 PERCENTAGE 28% 38% 22% 12% 40% 35% 30% 25% 20% 15% 10% 5% 0% 18-30 30-45 45-60 Above 60 Series1 INTERPRETATION: It is interpreted that 38% of the respondents lies between 30-45 year of age .and 12% respondents lies in age group which is above 60 years. 73 .

5 lacs which is 44% . while 8% belongs to above 10 lacs.Question 14 : Specify your income group .and 12% belongs to up to 2 lacs . INCOME GROUP Up to 2 lacs 2-5 lacs 5-10 lacs Above 10 lacs PERCENTAGE 12% 44% 36% 8% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Up to 2 lacs 2-5 lacs 5-10 lacs Above 10 lacs Series1 INTERPRETATION: It is interpreted that majority of respondents is belong to income group of 2 . 74 . and 36% belongs to 5 – 10 lacs.

Question 15: Specify your class of profession. PROFESSION C.A / Advocate / Doctor Service Class Business Student PERCENTAGE 14% 26% 52% 8% 60% 50% 40% 30% 20% 10% 0% C. while 14% are C.A / Advocate / Doctor Service Class Business Student Series1 INTERPRETATION: It is interpreted that majority of respondents is belong to Service class which is 52% . and rest 8 % are students. 75 . and 26% are business person .A/ Advocate / Doctor.

technology is allowing banks to offer new products. The rise of E-banking is redefining business relationships and the most successful banks will be those that can truly strengthen their relationship with their customers. productive banking industry is providing services of greater quality and value. operate more efficiently. Technology is altering the relationships between banks and its internal and external customers. A more efficient. we have learnt that information technology has empowered customers and businesses with information needed to make better investment decisions. At the same time. Today. expand geographically and compete globally. No country today has a choice whether to implement E-banking or not given the global and competitive nature of the economy.CONCLUSION From all of this. collectively referred to as e-banking. The invasion of banking by technology has created an information age and commoditization of banking services. raise productivity. Banks have come to realize that survival in the new e-economy depends on delivering some or all of their banking services on the Internet while continuing to support their traditional infrastructure. E-banking has become a necessary survival weapon and is fundamentally changing the banking industry worldwide. Banks have traditionally been in the forefront of harnessing technology to improve product and efficiency. being made available to retail and wholesale customer through an electronic distribution channel. Technology has 76 . the click of the mouse offers customers banking services at a much lower cost and also empowers them with unprecedented freedom in choosing vendors for their financial service needs. Technology innovation and fierce competition among existing banks have enable a wide array of banking products and services.

Internet has created plenty of opportunities for players in the banking sector. But on the flipside. The incremental costs incurred for expansion and diversification are also more beneficial. technology has brought about superior products and channel management with a special focus on customer relationship. cross-border risk and strategic risk. which are unique to e-banking. banks must learn to capitalize their customer’s different online financial-services relationships 77 . While the new entrants have the advantage of latest technology.also eroded the entry barriers faced by many industries. Banks need to have an effective disaster recovery plan along with comprehensive risk management tool is significant not only to the bank but also to the banking system as a whole. security risk. Instead. The major driving force behind the rapid spread of e-banking is its acceptance as an extremely cost effective delivery channel. the good-will of the established banks gives them a special opportunity to lead the online world. By merely putting existing service online won’t help the banks in holding their customer close. With one time investment. it is associated with risks such as reputation risk.

Good time. 4. 2. Some of the respondents were not ready to fill up the Questionnaire due to lack of time. Faced little bit of difficulty in collecting the required data because most of the people were not aware.LIMITATIONS 1. efforts and money was spent in contacting the respondent to get the questionnaire filled. 78 . Some of the respondents were not ready to fill the respondent’s profile. Problem is faced with preparing the questions due to non-technical background and inexperience. 3. 5.

banks must act quickly. mutual funds and insurance. 2) The first and most obvious step they should take is to see to it that the basic problem fueling dissatisfaction have been addressed. 3) In addition. to meet the challenge of online brokerage and other new entrants. 79 . 6) Banks need to appeal to customers who may not be technologically sophisticated.SUGGESTIONS 1) To prevent online banking from remaining an expensive additional channel that does little to retain footloose customers. 4) The banks should take up responsibility of educating the customers and all the benefits of internet banking 5) There is a need felt for the banks to promote the online banking services and proper promotional activities are not taking place. banks would need to add “supermarkets” selling products such as mortgage.

com Banknetindia.com/?A-Brief-History-of-Internet-Banking&id=353450 Express computers: http://www.com Internet Banking in India-Part I.http://ezinearticles.icicibank.com/20020916/indtrend1.www.hsbc.BIBLIOGRAHY • • • • • • • • • • HDFC BANK.banknetindia.www. ICICI BANK – www.www.shtml E-finance by Vasant C Joshi.in THE BUSINESS LINE.onlinesbi. K.hdfcbank.Dr A. 80 .expresscomputeronline.http://www.com State bank of India. Mishra Hsbc bank :.com/banking/ibkgintro.co.htm Ez articles:.

I am doing this research to compare different services provided by bank to its clients 1.M). Are you aware of E banking services offered by your Bank ? (a) Yes (b) No 3. In which bank do you have your account ? (a) (b) (c) (d) (e) (f) PNB ICICI Bank AXIS Bank HDFC BANK STATE BANK FOF INDIA any other……………….F.(please specify) 2.Annexure QUESTIONNAIRE Dear Respondent. I shuaib anwer student of Institute of Foreign Trade And Management(I.T. Does your bank educates you about the E banking services offered ? 81 .

(a) Yes (b) No 4. What are your main transactions you would prefer to do by E banking? (a) (b) (c) (d) (e) (f) (g) Money transfers Checking of your current balance Create Fixed Deposits Online Create Fixed Deposits Online Pay Bills Order a Cheque Book Request Stop Payment on a Cheque 6.now and then ? (a) Yes (b) No 7. Does your bank helps you in transaction through E (a) Yes (b) No banking ? 5. What benefits do you perceive in E banking (a) (b) (c) (d) Convenience Transparency Speed Time 82 . Do you prefer using E banking instead of visiting your bank .

Are you aware of the methods which can be taken up to secure a transaction ? (a) Yes (b) No 9. Are you satisfied with your E banking services ? (a) Yes (b) No 11. Specify your Age group? (a) 18 – 30 (b) 30 – 45 (c) 45 – 60 (d) above 60 14. Specify your income group? (a) Up to 2 lacs (b) 2 – 5 lacs 83 . If not satisfied then why ? ………………………………………………………………… 12.. Do you feel safe in disclosing your details on net while using net banking ? (a) Yes (b) No 10. If yes. then you will suggest to others to avail the services? ……………………………………………………………………. 13.8.

... (a) C.(c) 5 – 10 lacs (d) above 10 lacs 15. Specify your class of profession ....A / Advocates / Doctor (b) Service class.. (c) Business (d) Student Personal Information Name: Age: Sex: ( ) Male ( ) Female Phone no: 84 .

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